FY2011 US GOVT BUDGET/Mid-Year Review -- 23-JUL-2010

8/9/2019 FY2011 US GOVT BUDGET/Mid-Year Review -- 23-JUL-2010

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Mid-Session ReviewBudget of the U.S. Government

O f f i c e o f M a n a g e m e n t a n d B u d g e t

w w w . b u d g e t . g o v

Fiscal Year 2011


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Mid-Session ReviewBudget of the U.S. Government

O f f i c e o f M a n a g e m e n t a n d B u d g e t

w w w . b u d g e t . g o v

Fiscal Year 2011


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EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET

WASHINGTON D. C. 20503

THE DIRECTOR

July 23, 2010

The Honorable Nancy Pelosi

Speaker of the House of Representatives

Washington, DC 20510

Dear Madam Speaker:

Section 1106 of Title 31, United States Code, requests that the President send to the Congress

a supplemental update of the Budget that was transmitted to the Congress earlier in the year.

This supplemental update of the Budget, commonly known as the Mid-Session Review, contains

revised estimates of receipts, outlays, budget authority, and the budget decit for scal years

2010 through 2020.

Sincerely,

Peter R. Orszag

Director

Enclosure

Identical Letter Sent to the President of the Senate


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i

TABLE OF CONTENTS

List o Tables .......................................................................................................................................... iii

Summary ................................................................................................................................................. 1

Economic Assumptions ........................................................................................................................... 7

Receipts ................................................................................................................................................. 13

Expenditures ......................................................................................................................................... 15

Summary Tables ................................................................................................................................... 19

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iii

LIST OF TABLES

Table 1. Change in Decits rom the February Budget .............................................................. 6

Table 2. Economic Assumptions ................................................................................................... 9

Table 3. Comparison o Economic Assumptions ........................................................................ 10

Table 4. Change in Receipts ....................................................................................................... 14

Table 5. Change in Outlays ........................................................................................................ 18

Table S1. Budget Totals ................................................................................................................ 20

Table S2. Eect o Budget Proposals on Projected Decits ........................................................ 21

Table S3. Baseline Projection o Current Policy by Category ..................................................... 23

Table S4. Proposed Budget by Category ...................................................................................... 25

Table S5. Proposed Budget by Category as a Percent o GDP .................................................... 27

Table S6. Proposed Budget by Category Adjusted or Infation and Population Growth .......... 29

Table S7. Bridge rom Budget Enorcement Act Baseline to Baseline Projectiono Current Policy ........................................................................................................... 31

Table S8. Change in the Baseline Projection o Current Policy rom Budget to MSR .............. 32

Table S9. Mandatory and Receipt Proposals ............................................................................... 34

Table S10. Funding Levels or Appropriated (Discretionary) Programs by Category .............. 47

Table S11. Funding Levels or Appropriated (Discretionary) Programs by Agency ................. 49

Table S12. Outlays or Mandatory Programs Under Current Law .............................................. 52

Table S13. Market Valuation and Balance Sheet o Fannie Mae and Freddie Mac .................... 53

Table S14. Federal Government Financing and Debt ................................................................... 54

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1

The economy now is markedly dierentrom what it was at the beginning o thePresidents term, 18 months ago. In Januaryo 2009, the economy was on the brink o apotentially severe depression, precipitated byan era o irresponsibility marked by excessiverisk-taking in, lax oversight o, and an even-tual meltdown in the countrys credit andcapital markets. The result was a severe andrapid economic contraction, the collapse o thenancial markets, and damaging and painul

job losses. More than 750,000 jobs were lost just in the rst month o 2009, 3.7 millionwere lost in the rst hal o that year, and 8.4

million were lost between the beginning o therecession, at the end o 2007, and the begin-ning o the recovery.

At its start, then, the Administration aceda gap between what the economy could beproducing and what it was producing: adierence o $1 trillion or approximately 7percent o gross domestic product (GDP). Inaddition, the country aced historic budgetdecits and an unsustainable scal trajec-tory. No longer was the Nation expecting toenjoy the surpluses projected at the begin-ning o the last decade. Instead, upon taking

oce, the President was presented with abudget decit or 2009 estimated to be $1.3trillion, or 9.2 percent o GDP. The previ-ous Administrations decisions not to pay orthree large domestic initiatives (the tax cutso 2001 and 2003 and the Medicare prescrip-tion drug benet o 2003), along with theeects o the economic collapse and the stepsneeded to combat it, produced an historicallylarge ten-year decit o more than $8 trillion.Even this large amount did not account orthe depth or duration o the recession, andthe ten-year decit projections grew by anadditional $2 trillion as the severity o thedownturn became ully apparent.

The Administration moved switly to pre-vent the economy rom alling into a secondGreat Depression. To stimulate demand and

jumpstart economic growth, the Presidentsigned into law the American Recovery andReinvestment Act o 2009. The Recovery Actprovided tax cuts to small businesses and95 percent o working amilies and helped to

lay a new oundation or long-term economicgrowth and prosperity with investments inhealth care, education, inrastructure, andclean energy. The Recovery Act has had ademonstrable and signicant eect on theeconomy, raising real GDP as o the secondquarter o 2010 by an estimated 2.7 to 3.2percent relative to what it otherwise wouldhave been, and increasing employment byan estimated 2.5 to 3.6 million. The Nationseconomy has grown or three consecutivequarters and created nearly 600,000 privatesector jobs in the rst hal o this yearastark contrast to the 3.7 million lost over

the rst hal o last year. In act, ater 22straight months o job loss, the economyhas created jobs in the private sector orsix months in a row. In addition, othereconomic indicators are showing signs oimprovement. Industrial production (whichprimarily refects manuacturing), real dis-posable income, shipments o capital goods,and U.S. exports have all improved.

Despite these hopeul signs, the economy isstill struggling; too many Americans are stillout o work; and the Nations long-term s-cal trajectory is unsustainable, threatening

uture prosperity. Building on the steps the Administration and the Congress have al-ready taken, the Administrations proposals,refected in the Mid-Session Review (MSR),seek to speed the recovery, keep the economygrowing, and put the country on more soundscal ooting.

Sparking Job Creation andEconomic Growth

In order to provide relie and augment thepositive eects o the Recovery Act, the 2011Budget proposed specic recovery measuresas well as an allowance or additional recov-ery eorts. Since the release o the Budgetin February, the Administration has workedwith the Congress to enact a number o thesemeasures. On March 18, the President signedinto law the Hiring Incentives to RestoreEmployment (HIRE) Act. This Act eliminatesthe employers share o payroll taxes or theremainder o this calendar year or thosebusinesses that hire workers who have been

SUMMARY


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2 MID-SESSION REVIEW

unemployed or underemployed or at least twomonths, provides a credit to those businessesthat retain new workers or at least one year,allows small businesses to depreciate imme-

diately the ull cost o equipment purchasesmade this calendar year, allows municipalgovernments to acquire the needed nancingor schools and clean energy projects throughBuild America Bonds, and provides resourcesor investments in transportation inrastruc-ture. In addition, the President signed into lawthe Temporary Extension Act o 2010 on March2 and the Continuing Extension Act o 2010 on

April 15, which, among other things, extendedunemployment insurance (UI) benets andCOBRA health insurance premium assistance.

To urther help the recovery, the Admin-istration is also working with the Congress

to quickly pass legislation that will maintainextended UI benets or those individualshardest hit by the economic downturn. Aso early July, more than 2 million laid-oworkers had lost their unemployment benetsdue to a lack o Congressional action on a billto continue unemployment insurance benetsor those experiencing extended episodes ounemployment. Extended unemploymentinsurance will do more than provide relieto those hardest hit by the recession; it willput money in the hands o those most likelyto spend it, leading to increased consumptiono goods and services, and subsequent

business growth and hiring. That is whythe Congressional Budget Oce and otherindependent institutions have identiedextended unemployment benets as amongthe most eective short-term measures tosupport the economic recovery.

To help states struggling to make endsmeet, the Administration supports a six-month, $21.7 billion extension o thetemporary increases in the Federal matchingpercentages or State Medicaid expendi-tures as well as $25 billion to prevent thering o teachers, reghters, and police o-cers along with accountability measures orthose unds. To assist small businesses thatare still having trouble accessing capital,which is critical to their growth and abilityto hire, the Administration supports a $30billion lending und, a State Small BusinessCredit Initiative to bolster innovative Statesmall business programs, and enhance-ments to Small Business Administration

lending programs including higher loanlimits. To encourage new investment, the

Administration calls or the elimination ocapital gains taxes on certain small busi-

ness investments and the acceleration o thedepreciation allowance or new investmentor all businesses. To bolster the residentialimprovement industry and promote energyeciency, the Administration urges passageo its Home Star program to provide $6 bil-lion in direct rebates to consumers or homeweatherization. And to help hard-workingamilies through this dicult time as well asto stimulate the economy, the Administrationproposes to extend the Making Work Paytax credit or one year, which will benet 95percent o working amilies.

In addition to the specic proposals to pro-

mote job growth detailed above, the MSRrefects an allowance or urther jobs initia-tives o $50 billion. The February Budgetincluded an allowance o $100 billion. Withthe subsequent enactment o the HIRE Act,and the specication in the MSR o jobs initia-tives that had not been previously speciedin February, such as the $25 billion und toprevent the ring o teachers, reghters,and police ocers, total support in the MSRor jobs initiatives remains at the level othe February Budget. The Administrationbelieves that the remaining $50 billion al-lowance will provide fexibility to support

additional job growth.

Restoring Fiscal Responsibility

In the short term, the Administration isworking to speed up the recovery and keepthe economy growing. Looking to the mediumand long term as the economy recovers, the

Administration is taking steps to strengthenthe Governments scal outlook and restorescal responsibility to Washington. The 2011Budget contained more than $1 trillion indecit reduction over ten years, including athree-year reeze on non-security discretion-ary spending; an end to subsidies or oil, gas,and coal companies and other tax loopholes;and the expiration o the 2001 and 2003 taxcuts or those making more than $250,000 ayear. The Administration also proposed in theBudget to terminate or reduce 126 programs,generating $23 billion in savings in 2011 alone.

Augmenting these proposed eciencies, the Administration has moved aggressively to


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3SUMMARY

curtail the $110 billion in improper paymentsmade by the Federal Government each year,save $40 billion through contracting reorm by2012, improve how unds are spent on inorma-

tion technology projects and terminate thosethat have little prospect or success, and beginto dispose o unneeded Federal real property.

Since the release o the Budget in February,the President also has moved to improve thebudget process, restoring responsibility andempowering policymakers with the tools tohelp reduce unnecessary or wasteul spending.On February 12, 2010, the President signedthe Statutory Pay-As-You-Go Act, which setsin law the simple proposition that Congressshould pay or what it spends. Specically,it requires that enacted legislation that in-creases mandatory spending or reduces tax

revenues be oset by other legislation that ei-ther reduces mandatory spending or increasesgovernmental receipts. This law restores thepay-as-you-go requirement that was in placeduring the 1990s and contributed toward cre-ating the surpluses o that era.

On May 24, 2010, the Administration submit-ted to the Congress the Reduce UnnecessarySpending Act o 2010 to establish a new toolto reduce unnecessary or wasteul spend-ing. Under this new expedited procedure,the President could submit to the Congress apackage o rescissions shortly ater a spend-

ing law is enacted. The Congress would berequired to consider these recommendationsas a package, without amendment, and witha guaranteed up-or-down vote within a speci-ed timerame. This new expedited rescissionauthority would empower the President andthe Congress to eliminate unnecessary spend-ing while discouraging waste in the rst place.It would be particularly eective in reining inprograms that are heavily earmarked or notmerit-based as well as those that are clearlywasteul and duplicative.

The Administration is also demanding re-sponsibility rom the nancial sector. As aresult o improved nancial conditions andcareul stewardship, the expected cost o theTroubled Asset Relie Program (TARP) contin-ues to all. In August 2009, the Administrationprojected that TARPwhich permitted upto $700 billion in Government nancial as-sistance to be outstanding at any giventimewould ultimately cost a total o $341

billion; today, that cost is over $225 billionlower. While the Administration is pleasedthat the cost o the TARP program is muchless than rst estimated, shared responsibil-

ity requires that the nancial rms pay backthe taxpayer or the extraordinary action tak-en to prevent a deeper nancial crisis. Whenthe Congress wrote the legislation authoriz-ing TARP in the all o 2008, it required thatthe President propose a way or the nancialsector to pay back taxpayers so that not onepenny o TARP-related debt is passed on tothe next generation o Americans. That iswhy the President has proposed a FinancialCrisis Responsibility Fee on the largest nan-cial rms. The proposed ee would remain inplace or at least ten years and is estimated toraise $90 billion over that time.

The most recent step toward nancial sectorreorm is enactment o the Dodd-Frank WallStreet Reorm and Consumer Protection Act.This law will restrict risky nancial activi-ties, hold nancial rms accountable or therisks they take, and protect consumers romabusive credit practices. Because this law wasenacted so recently, it is not refected in theMSRs outlay and receipt estimates; however,the Congressional Budget Oce estimatesthe law to provide $3.2 billion in savings overthe ten-year budget window.

Finally, since the biggest driver o decits

in the long-term is the rising cost o healthcare, the most important step taken to con-tribute to the long-term scal sustainabilityo the Nation has been the enactment o thePatient Protection and Aordable Care Acton March 23, as amended by the Health Careand Education Reconciliation Act o 2010 onMarch 30, and collectively reerred to as the

Aordable Care Act. The Aordable Care Actprovides middle-class tax credits or healthcare and reduces health insurance premiumsor comparable coverage or both amilies andsmall businesses. It also establishes healthinsurance exchanges to provide health insur-ance options to Americans that are the sameas the options given to Members o Congress,and it ends discrimination against those

Americans who have pre-existing health con-ditions. In addition, the Aordable Care Acthelps to prevent excessive premium increasesand improper denials o coverage, and prohib-its arbitrary rescissions o policies and annualand lietime benet limits.


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From a scal standpoint, the AordableCare Act willaccording to the CongressionalBudget Ocereduce the decit by morethan $100 billion over the next ten years and

more than $1 trillion over the subsequent tenyears. Moreover, it puts in place importantmechanisms to both improve quality and re-duce cost, such as the Independent Payment

Advisory Board, the excise tax on expensivehealth care plans, and reorms that seek totransorm the health care system into onethat pays or the quality rather than the quan-tity o treatments. The Aordable Care Actincludes the most auspicious set o changesever enacted to reduce the rate o health carecost growth over the long term, which is criti-cal to the scal health o the country. RecentCongressional Budget Oce long-term pro-

jections indicate that ull implementation

o the Aordable Care Act would reduce thelong-term scal gap by between 2 and 3 per-cent o GDP. The Administration is workingboth expeditiously and careully to implementthe Aordable Care Act.

Even with the decit reduction measures thatthis Administration has enacted and proposed,the Nation remains on an unsustainable s-cal course. In the medium term, the economicrecovery and the Administrations policies willreduce the decit rom 10 percent o GDP to-day to 4 percent by the middle o the decade.This is the largest and astest decit reduc-

tion to occur since World War II, but the decitwould still remain undesirably high. And while,over the long term, the Aordable Care Act willhelp signicantly to reduce decits, health carecosts are still expected to continue to consume agrowing share o the Federal budget or decadesto come. In addition, the aging o the populationwill add to the scal pressure the Governmentalready aces because o the irresponsibility othe past and the scal pressure it will continueto ace in coming decades.

Because o the unsustainable nature o theGovernments medium- and long-term scaloutlook and the importance o bringing allsides in Washington together to tackle this se-rious problem, the President established thebipartisan National Commission on FiscalResponsibility and Reorm. The Commissionwill make recommendations to balancethe Governments annual program spend-ing with receipts by 2015, achieving what isknown as primary balance. The result o

the Commissions recommendations will beannual decits that are approximately equalto 3 percent o GDP. Decits o this size willstabilize the ratio o debt to GDP. Most econo-

mists consider this to be necessary or scalsustainability as debt and interest paymentsrise only as much as economic growth, ratherthan rising as a share o output and the bud-get over time. Stabilizing the debt-to-GDPratio also will allow the United States to ulllthe commitment it made to the G-20 Nationsin Toronto in June regarding sovereign debt.

MID-SESSION UPDATE

The Mid-Session Review updates estimateso Federal receipts, outlays, and the decitto refect legislation enacted through July2, 2010, including action on the Presidents

Budget proposals, and policy, economic, andtechnical changes that have occurred sincethe Budget was released.

Receipts

Receipts or 2010 are now projected to be$33 billion lower than projected in Februaryor a total o $2.132 trillion, or 14.5 percento GDP. For 2011, receipts are now project-ed to be $141 billion lower than projected inFebruary or a total o $2.426 trillion, or 15.8percent o GDP. Two-thirds o the reductionin receipts or 2011 result rom technical

reestimates, which refect actual tax collec-tions so ar in 2010, tax model revisions, andupdated taxable wage base data rom em-ployer tax returns. The next most signicantactor in the downward reestimate o 2011receipts is the reestimate o Administrationpolicy proposals contained in the MSR. Thisresults largely rom the assumption o laterenactment o a number o tax relie mea-suressuch as accelerated depreciation ornew business investmentthan assumed inthe Budget, which shits revenue loss rom2010 to 2011.

Just as receipts or the current and bud-get years are now projected to be somewhatlower than projected in the Budget, receiptsor 2012 through 2017 are also projected tobe lower. This downward reestimate is gen-erally shrinking over time and ranges rom areduction o $112 billion in 2012 to $11 billionin 2017. For 2018 through 2020, receipts areprojected to be slightly higher than projected


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5SUMMARY

in the Budget. Overall, total receipts are pro-jected to be $391 billion lower or the 2011 to2015 budget horizon and $402 billion loweror the 2011 to 2020 budget horizon.

Outlays

Outlays or 2010 are now projected to be$118 billion lower than projected in Februaryor a total o $3.603 trillion, or 24.6 percento GDP. The reduction is due in large part tolower outlay estimates or unemployment anddeposit insurance, and non-deense discre-tionary programs. Outlays or 2011 are nowprojected to be $3.842 trillion, essentially un-changed rom the Budget projection, or 25.1percent o GDP.

Starting in 2012 and continuing through

the budget horizon, outlays are projected tobe slightly lower than projected in February,with the reductions through 2015 resultingprimarily rom reductions in interest pay-ments and the reductions ater 2015 resultingprimarily rom lower entitlement programspending, including Medicare spending. Thesize o the downward reestimate in outlaysfuctuates over the outyears, with the reduc-tion ranging rom $22 billion to $87 billion.

Decits

Because o the lower outlays now projected

or 2010, the decit or 2010 is expected to be$1.471 trillion, $84 billion lower than project-ed in February. The 2010 decit is projected tobe 10.0 percent o GDP, which is 0.6 percent-age points lower than projected in Februaryand about the same as the 2009 level.

For 2011, the decit is projected to declinerom the 2010 level to $1.416 trillion, or 9.2percent o GDP, $150 billion higher thanprojected in February. This reestimate is pri-marily because o the reduction in projectedreceipts. For 2012, the decit is also pro-

jected to be slightly higher than projected in

February, equal to 5.6 percent o GDP, againbecause o the reduction in projected receipts.

Beginning in 2013, the decit projec-

tions are not signicantly dierent romthe February projections, with the decitsranging rom 3.4 to 4.3 percent o GDP orthe remaining years. The decit projectionsshow that the budget is still on track tomeet the Presidents goal o cutting the de-cit, as a percent o GDP, in hal by the endo his rst term. The decit the Presidentinherited on January 20, 2009, was equal to9.2 percent o GDP and the decit or 2013is projected to be equal to 4.3 percent oGDP. In addition, the budget is on track toulll the United States commitment at theG-20 Toronto Summit in June, which was tocut the current decit (10.0 percent o GDP

or 2010) in hal by 2013. These MSR de-cit projections do not take into account theadditional decit reduction tasked to theFiscal Commission.

Debt held by the public, which can be viewedas the sum o all prior decits, is projected tobe $9.2 trillion at the end o 2010, or 62.7 per-cent o GDP. Some Government debt that isheld by the public was issued to acquire nan-cial assets as part o TARP. Debt held by thepublic net o these and other nancial assetsis projected to be $8.1 trillion, or 55.1 percento GDP, at the end o 2010.

For 2011, debt held by the public is projected to rise to $10.6 trillion, or 68.9percent o GDP, and to continue increasingthroughout the ten-year budget horizon toa projected 77.4 percent o GDP in 2020.Similarly, debt net o nancial assets is pro-

jected to increase to 61.9 percent o GDP in2011 and to increase gradually each yearthereater to 69.2 percent o GDP in 2020.

As noted above or decit projections, thesedebt projections do not take into account theadditional decit reduction tasked to theFiscal Commission.


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Table 1. CHANGE IN DEFICITS FROM THE FEBRUARY BUDGET(In billions o dollars)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011-2015

2011-2020

February Budget decit ............................................ 1,556 1,267 828 727 706 752 778 778 785 908 1,003

Percent o GDP ...................................................... 10.6% 8.3% 5.1% 4.2% 3.9% 3.9% 3.9% 3.7% 3.6% 3.9% 4.2%

Enacted legislation and policy changes:

Aordable Care Act ....................................... 2 26 23 5 17 2 3 3 * 4 8 25 13

Preservation o Access to Care or MedicareBeneciaries and Pension Relie Act ........ 1 * 6 7 8 8 9 10 10 11 12 29 82

Student Aid and Fiscal Responsibility Act ... 2 1 6 4 5 5 6 6 7 9 12 7 46

Other legislation and policy changes ........... 6 20 3 6 22 1 15 1 2 2 8 11 11

Debt service .................................................... * * 1 2 1 1 1 1 2 3 5 3 10

Subtotal, policy changes ....................................... 5 48 22 21 51 17 4 15 18 30 28 19 114

Economic and technical reestimates:

Receipts .......................................................... 38 124 99 72 32 22 14 5 11 22 33 349 302

Discretionary programs ................................. 30 17 11 6 2 1 3 5 2 2 2 37 51Mandatory programs:

Medicare ..................................................... 4 3 4 2 8 4 17 13 7 16 13 9 75

Unemployment compensation ................... 34 17 9 7 7 6 6 5 4 3 2 46 66

Veterans Compensation and Pension ........ 9 10 1 2 2 3 3 3 3 4 4 18 37

Medicaid ...................................................... 1 11 7 5 12 8 1 5 4 4 4 3 21

Deposit insurance ....................................... 18 11 14 3 1 6 11 16 21 3 * 21 18

Social Security ............................................ 1 * 1 * 1 2 2 2 2 2 2 2 13Supplemental Nutrition Assistance

Program .................................................. * * 1 1 * 1 3 4 3 1 * 1 11

Troubled Asset Relie Program .................. 10 3 * 2 2 2 2 1 * ......... ......... 4 7

Other ........................................................... 8 5 4 6 39 24 6 10 15 19 28 69 4

Subtotal, mandatory programs ............... 83 8 1 5 40 21 25 47 6 34 40 58 94

Net interest 1 .................................................. 3 30 49 53 31 16 9 5 2 2 4 179 202

Allowance or uture disaster costs ............... 1 1 * * * * * ......... ......... ......... ......... 2 2

Subtotal, economic and technical reestimates ..... 79 102 61 30 43 27 16 42 17 56 75 262 56

Total, changes ............................................................ 84 150 83 9 8 10 20 57 36 86 103 243 58

Mid-Session Review decit ....................................... 1,471 1,416 911 736 698 762 758 721 749 822 900

Percent o GDP ...................................................... 10.0% 9.2% 5.6% 4.3% 3.8% 4.0% 3.8% 3.4% 3.4% 3.6% 3.8%

Note: positive gures represent higher outlays or lower receipts.

* $500 million or less.1 Includes debt service on all reestimates.


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This Mid-Session Review (MSR) updates theeconomic orecast rom the 2011 Budget. TheBudget orecast, completed last November andreleased with the Budget in early February,projected that the increase in output that be-gan in the second hal o 2009 would continueduring 2010 and 2011 and that unemploy-ment would all gradually rom its elevatedlevels.

Output growth had just begun to appearin the economic data at the time o theprevious orecast, but it is now well estab-lished. Industrial production, retail sales,

and shipments and orders or capital goodsare all substantially higher than they werein the worst months o 2009. There havebeen three consecutive quarters o positivereal GDP growth since 2009:Q2, and realGDP almost certainly continued to increasein 2010:Q2.

While the economy has begun adding jobswith private sector employment in-creasing in each o the past six monthslabor market recovery is occurring onlygradually. Unemployment has allen 0.6percentage points rom its peak in October

2009, but remains above 9 percent. Whilethe 147,000 jobs per month that have beenadded on average over the past six monthsis a major improvement rom the job losseso 750,000 per month the economy was ex-periencing in early 2009, it will take manymonths o job growth to oset the 8.4 million

jobs that were lost between December 2007and December 2009.

Two policy initiatives are driving thisresumption o economic growth and job cre-ation. The Recovery Act provides stimulus inthe orm o tax reductions, support or Stateand local government budgets, and increasesin Federal spending, all serving to mitigatethe severity o the downturn. The Councilo Economic Advisers estimates that theRecovery Act has raised real GDP, as o thesecond quarter o 2010, by between 2.7 and3.2 percent and employment by between 2.5and 3.6 million compared with what wouldhave happened in the absence o the recov-ery measures. These estimates are similar to

those o the Congressional Budget Oce andother analysts. Also, aggressive actions by theFederal Reserve and the Department o theTreasury have stabilized nancial marketswhile helping to unlock household and busi-ness access to credit.

The economy has responded to these policyactions. Real GDP, or instance, has expand-ed at an annual rate o 3.5 percent over themost recent three quarters, and real consum-er spending and business xed investmentare both expanding again. So ar in 2010,payroll employment in the private sector has

increased by 593,000 jobs. Total payroll em-ployment has increased more, but some othis represents hiring or the 2010 Census,which has already begun to unwind. Anotherindicator o labor market repair is the 2.9 per-cent annual rate o growth in hours workedsince December 2009. Business spending onequipment and sotware has risen at a 10.4percent annual rate since the second quar-ter o 2009, as businesses have responded tothe improved sales outlook. Moreover, saleso motor vehicles, ater plunging in 2008and 2009, are up 21 percent rom a low inFebruary 2009and auto companies are

making prots once again.

Despite these positive developments, theU.S. economy still aces strong headwinds.First, nancial market uncertainty has ham-pered credit creation since 2007. Spreadsbetween private debt, such as commercialpaper, and Treasury securities have returnedto pre-crisis levels, but commercial banks andother private lenders have tightened creditstandards and many credit-worthy borrow-ers still have diculty nding credit. Still,ater declining in every month since October2008, commercial and industrial loans at theNations banks increased in June.

Second, although the housing market isshowing signs o stabilizing, there is a largeoverhang o unsold property, which is hold-ing back new construction. At current salesrates, the existing supply o new homes wouldlast or 8.5 months, well above the long-runaverage supply. The median wait to sell a newhome is 14.2 months, near the all-time peak.

ECONOMIC ASSUMPTIONS


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Third, most State governments ace balancedbudget requirements, and the economic down-turn has orced scal consolidations that havereduced aggregate demand and slowed growth.

The Recovery Act has helped ease State scaladjustments, and the Administration has pro-posed additional measures to help ease Statebudget shortalls and prevent the ring oemployees such as teachers, reghters, andpolice ocers. However, even with this scalsupport, urther consolidation is likely.

Finally, several European countries haveencountered diculty in recent months in ob-taining credit, and nancial markets aroundthe world have responded negatively to thesedevelopments. The European Union has actedorceully, however, to conront these issues, es-tablishing a $1 trillion nancial rescue pack-

age that may be drawn upon by threatened eu-rozone nations, and the aected governmentshave acted to restrain their projected budgetdecits. Even with these actions, the Europeanrecovery is at risk because o increased un-certainty while government stimulus is with-drawn, and a urther slowdown in Europewould pose problems or the rest o the worldwhose exports to Europe may be reduced.

Despite these headwinds, the Administrationexpects economic growth and job creation tocontinue or the rest o 2010 and to rise in 2011and beyond. As the economy expands, the un-

employment rate is expected to all graduallyto more normal levels, but the collapse o thehousing bubble and the subsequent nancialcrisis have taken a signicant toll on the econ-omy, and many o the ater-eects are likely tobe elt or years to come.

Beyond 2016, the Administrations orecast isbased on the long-run trends expected or realGDP growth, price infation, and interest rates.Projected real GDP growth in the long run isbelow the historical average or the UnitedStates because o an expected slowdown inthe growth o the labor orce as the populationages. Long-run economic growth is expected toaverage 2.5 percent, which is unchanged romthe February Budget orecast.

ECONOMIC PROJECTIONS

The revised MSR economic projections arebased on inormation available through earlyJune 2010. They are summarized in Table 2.

Real Gross Domestic Product (GDP) and theUnemployment Rate: Real GDP is expected torise by 3.1 percent during the our quarters o2010 and to increase 4.0 percent in 2011. The

growth rate is projected to rise to 4.3 percentin 2012 and 4.2 percent in 2013 as the econo-my returns closer to its potential output level.Beyond 2013, real GDP growth is projected tomoderate, declining gradually to 2.5 percentper year in 2018-2020.

The unemployment rate is projected to aver-age 9.7 percent in 2010. This is the averagelevel o unemployment that has prevailed dur-ing the rst six months o the year. Despite thegrowth in output, unemployment is projected todecline slowly because, as labor market condi-tions improve, discouraged workers rejoin thelabor orce, adding temporarily to unemploy-

ment, while part-time workers increase theirhours o work. With continued healthy growthin 2011 and beyond, the unemployment rate isprojected to all, but it is not projected to allbelow 6.0 percent until 2015. The increase inunemployment was unusually steep in this cy-cle, exceeding what might have been expectedbased on the decline in real GDP. Conceivably,the outsized rise in unemployment might beollowed by an equally rapid decline, but that isnot assumed in these projections. Rather, theyrefect the close relationship that has prevailedhistorically between changes in real GDP andunemployment.

Infation: Infation peaked in 2008 mainlybecause o a sharp rise in world oil prices, andit has declined since then. Core infation, ex-cluding ood and energy prices, has also de-clined but much less dramatically than thetop-line measure. Core infation was 2.4 per-cent between June 2007 and June 2008; it was1.7 percent over the ollowing 12 months; androm June 2009 through June 2010 it was only0.9 percent. This is the lowest rate o core in-fation since 1963. Core infation is expectedto edge up in coming years as the economyrecovers and unemployment declines. In thelong run, the CPI infation rate is projected tobe 2.1 percent per year.

The other main measure o infation is theprice index or GDP. Year-over-year infa-tion by this measure is projected to be 0.7percent in 2010, 1.0 percent in 2011, 1.5 per-cent in 2012, and ultimately 1.8 percent in2016-2020.


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9ECONOMIC ASSUMPTIONS 9

Table 2. ECONOMIC ASSUMPTIONS1

(Calendar years; dollar amounts in billions)

Actual Projections

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Gross Domestic Product (GDP):

Levels, dollar amounts in billions:

Current dollars ................... 14,441 14,256 14,817 15,516 16,412 17,383 18,384 19,369 20,337 21,281 22,204 23,166 24,167

Constant (2005) dollars ...... 13,312 12,987 13,406 13,894 14,474 15,084 15,690 16,248 16,765 17,227 17,659 18,095 18,543

Price index (2005 = 100) ..... 108.5 109.7 110.5 111.6 113.4 115.2 117.1 119.2 121.3 123.5 125.7 128.0 130.3

Percent change, Q4/Q4:

Current dollars ................... 0.1 0.7 4.0 5.3 6.0 5.9 5.7 5.2 4.9 4.4 4.3 4.3 4.3

Constant (2005) dollars ...... 1.9 0.1 3.1 4.0 4.3 4.2 3.9 3.4 3.1 2.6 2.5 2.5 2.5

Price index (2005 = 100) ..... 1.9 0.7 0.8 1.3 1.6 1.6 1.7 1.7 1.8 1.8 1.8 1.8 1.8

Percent change, year over year:

Current dollars ................... 2.6 1.3 3.9 4.7 5.8 5.9 5.8 5.4 5.0 4.6 4.3 4.3 4.3

Constant (2005) dollars ...... 0.4 2.4 3.2 3.6 4.2 4.2 4.0 3.6 3.2 2.8 2.5 2.5 2.5

Price index (2005 = 100) ..... 2.1 1.2 0.7 1.0 1.5 1.6 1.7 1.7 1.8 1.8 1.8 1.8 1.8

Incomes, billions o current dollars:

Corporate prots beore tax ....... 1,463 1,428 1,821 1,893 1,902 1,875 1,928 2,003 2,046 2,056 2,049 1,993 2,049

Employee compensation .... .. .. .. .. 8,037 7,783 7,948 8,395 8,927 9,506 10,103 10,695 11,282 11,855 12,426 13,028 13,617

Wages and salaries ..................... 6,546 6,277 6,398 6,755 7,191 7,685 8,194 8,684 9,158 9,630 10,087 10,580 11,058

Other taxable income 2 ............... 3,311 3,102 3,209 3,325 3,563 3,794 4,026 4,210 4,408 4,604 4,790 4,996 5,225

Consumer Price Index (all urban): 3

Level (198284 = 100) ................ 215.2 214.5 218.1 220.9 225.0 229.3 233.8 238.6 243.5 248.7 253.9 259.3 264.7

Percent change, Q4/Q4 ............... 1.6 1.5 1.0 1.6 1.9 1.9 2.0 2.0 2.1 2.1 2.1 2.1 2.1

Percent change, year/year .......... 3.8 0.3 1.6 1.3 1.8 1.9 2.0 2.0 2.1 2.1 2.1 2.1 2.1

Unemployment rate, civilian, percent:Fourth quarter level ................... 6.9 10.0 9.6 8.7 7.7 6.8 6.0 5.5 5.2 5.2 5.2 5.2 5.2

Annual average .......................... 5.8 9.3 9.7 9.0 8.1 7.1 6.3 5.7 5.3 5.2 5.2 5.2 5.2

Federal pay raises, January, percent:

Military 4 ..................................... 3.5 3.9 3.4 1.4 NA NA NA NA NA NA NA NA NA

Civilian 5 ...................................... 3.5 3.9 2.0 1.4 NA NA NA NA NA NA NA NA NA

Interest rates, percent:

91-day Treasury bills 6 ................ 1.4 0.2 0.2 0.7 1.9 3.3 4.1 4.1 4.1 4.1 4.1 4.1 4.1

10-year Treasury notes .............. 3.7 3.3 3.5 4.0 4.6 5.0 5.3 5.3 5.3 5.3 5.3 5.3 5.3

NA = Not Available; Q4/Q4 = ourth quarter over ourth quarter1 Based on inormation available as o early June 2010.2 Rent, interest, dividend, and proprietors income components o personal income.3 Seasonally adjusted CPI or all urban consumers.4 Percentages apply to basic pay only; percentages to be proposed or years ater 2011 have not yet been determined.5 Overall average increase, including locality pay adjustments. Percentages to be proposed or years ater 2011 have not yet been de-

termined.6Average rate, secondary market (bank discount basis).


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Interest Rates: The projections or inter-est rates are based on nancial market dataand market expectations at the time that theorecast was developed. The three-month

Treasury bill rate is expected to average only0.2 percent in 2010 but to begin rising in 2011and reach 4.1 percent by 2014. The yield onthe ten-year Treasury note is projected to av-erage 3.5 percent in 2010 and to rise to 5.3percent by 2014. In the later years o the ore-cast, projected real interest rates are close totheir historical averages in real terms, giventhe projected rate o infation.

Incomes and Income Shares: Corporate pro-its have rebounded more quickly than laborcompensation (which consists o wages andsalaries and employee ringe benets such asemployer-provided insurance and pensions).

As a result, corporate prots have risen as ashare o the economy over the past ve quar-ters, while labor compensation as a share o theeconomy has allen below its long-run average.

As the economy continues to recover, this trendis expected to reverse. Labor compensation isprojected to rise somewhat relative to the sizeo the economy, while the share o corporateprots is projected to all somewhat. The wageshare, excluding ringe benets, is also expect-ed to recover rom its recent low level, in stepwith the increase in compensation.

FORECAST COMPARISONS

A comparison with the Blue Chip andFederal Open Market Committee (FOMC)

orecasts is shown below in Table 3. For2010, the projected rate o real GDP growthis similar to that o the June Blue ChipConsensus (an average o about 50 private-

sector orecasts). The MSR orecast or 2010is in the lower hal o the orecast rangerom the most recent public FOMC orecast.The most recent CBO orecast, which datesto last December, was somewhat lower. In2011, real GDP growth (ourth quarter overourth quarter) is expected to be 4.0 per-cent, which is within the FOMC range o3.5 to 4.2 percent, but is somewhat stron-ger than the Blue Chip consensus. CBO isrequired to assume that all o the 2001 and2003 tax cuts expire as scheduled in 2011,and, under this assumption, projects signi-icantly lower growth than other orecast-ers or 2011. CBO explained in itsBudget

and Economic Outlook: Fiscal Years 2010 to2020 that, absent this required assumption,its orecast would have been similar to thato other orecasters.

The Administration projects that unem-ployment will average 9.7 percent in 2010,9.0 percent in 2011, and 8.1 percent in 2012.The Blue Chip consensus is quite similar:9.6 percent in 2010 and 9.0 percent in 2011.The FOMC projects that unemployment willall more quickly. By the ourth quartero 2012, the FOMC orecast range extendsrom 7.1 percent to 7.5 percent, whereas the

Administration orecast or that quarter is 7.7percent.

Table 3. COMPARISON OF ECONOMIC ASSUMPTIONS(Calendar years; dollar amounts in billions)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Nominal GDP:

MSR ....................................................... 14,256 14,817 15,516 16,412 17,383 18,384 19,369 20,337 21,281 22,204 23,166 24,167

Budget .................................................... 14,252 14,768 15,514 16,444 17,433 18,446 19,433 20,408 21,373 22,329 23,312 24,323CBO ........................................................ 14,253 14,706 15,116 15,969 16,918 17,816 18,622 19,425 20,231 21,033 21,882 22,770

Blue Chip ............................................... 14,256 14,839 15,256

Percent change, year over year

Real GDP:

MSR ....................................................... 2.4 3.2 3.6 4.2 4.2 4.0 3.6 3.2 2.8 2.5 2.5 2.5Budget .................................................... 2.5 2.7 3.8 4.3 4.2 4.0 3.6 3.2 2.8 2.6 2.5 2.5

CBO ........................................................ 2.5 2.2 1.9 4.5 4.8 3.9 2.9 2.5 2.3 2.2 2.2 2.3Blue Chip . .............................................. 2.4 3.3 3.1


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11ECONOMIC ASSUMPTIONS 11

Table 3. COMPARISON OF ECONOMIC ASSUMPTIONSContinued(Calendar years; dollar amounts in billions)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Percent change, ourth quarter over ourth quarter

Real GDP:

MSR ....................................................... 0.1 3.1 4.0 4.3 4.2 3.9 3.4 3.1 2.6 2.5 2.5 2.5

Budget .................................................... 0.5 3.0 4.3 4.3 4.2 3.9 3.4 3.1 2.7 2.6 2.5 2.5CBO ........................................................ 0.4 2.1 2.4 5.1 4.7 3.4 2.7 2.5 2.2 2.3 2.2 2.3FOMC .................................................... 0.1 3.03.5 3.54.2 3.54.5 Longer Run Average: 2.52.8

Blue Chip ............................................... 0.1 3.1 3.1

Percent change, year over year

GDP Price Index:

MSR ....................................................... 1.2 0.7 1.0 1.5 1.6 1.7 1.7 1.8 1.8 1.8 1.8 1.8Budget .................................................... 1.2 0.9 1.2 1.6 1.7 1.7 1.7 1.8 1.8 1.8 1.8 1.8

CBO ........................................................ 1.2 0.9 0.9 1.0 1.1 1.3 1.6 1.7 1.8 1.8 1.8 1.8Blue Chip ............................................... 1.2 0.9 1.5

Consumer Price Index (CPI-U):

MSR ....................................................... 0.3 1.6 1.3 1.8 1.9 2.0 2.0 2.1 2.1 2.1 2.1 2.1Budget .................................................... 0.3 1.9 1.5 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1CBO ........................................................ 0.2 2.4 1.3 1.2 1.1 1.3 1.7 1.9 2.0 2.0 2.0 2.0

Blue Chip . .............................................. 0.3 1.8 1.7

Annual average in percent

Unemployment Rate:

MSR ....................................................... 9.3 9.7 9.0 8.1 7.1 6.3 5.7 5.3 5.2 5.2 5.2 5.2Budget .................................................... 9.3 10.0 9.2 8.2 7.3 6.5 5.9 5.5 5.3 5.2 5.2 5.2

CBO ........................................................ 9.3 10.1 9.5 8.0 6.3 5.3 5.1 5.0 5.0 5.0 5.0 5.0FOMC 1 ................................................... 10.0 9.29.5 8.38.7 7.17.5 Longer Run Average: 5.05.3

Blue Chip ............................................... 9.3 9.6 9.0

91-Day Treasury Bills:

MSR ....................................................... 0.2 0.2 0.7 1.9 3.3 4.1 4.1 4.1 4.1 4.1 4.1 4.1Budget .................................................... 0.2 0.4 1.6 3.0 4.0 4.1 4.1 4.1 4.1 4.1 4.1 4.1CBO ........................................................ 0.1 0.2 0.7 1.9 3.0 3.9 4.2 4.4 4.7 4.8 4.8 4.8Blue Chip ............................................... 0.2 0.3 1.4

10-Year Treasury Notes:

MSR ....................................................... 3.3 3.5 4.0 4.6 5.0 5.3 5.3 5.3 5.3 5.3 5.3 5.3Budget .................................................... 3.3 3.9 4.5 5.0 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3

CBO ........................................................ 3.2 3.6 3.9 4.2 4.5 4.9 5.2 5.4 5.6 5.6 5.6 5.6Blue Chip ............................................... 3.3 3.7 4.4

MSR = Mid-Session Review (orecast date June 2010).

Budget = 2011 Budget (orecast date November 2009).

CBO = Congressional Budget Oce (orecast date December 2009).

FOMC = Federal Reserve Open Market Committee (orecast central tendency, date June 2010).

Blue Chip = June Blue Chip Consensus Forecast.

Sources: Administration; CBO, The Budget and Economic Outlook: Fiscal Years 2010 to 2020, January 2010; FOMC, Minutes o theFederal Open Market Committee, June 22-23, 2010; Blue Chip Economic Indicators, June 2010, Aspen Publishers.

1 Fourth quarter levels o unemployment rate.


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13

The Mid-Session Review estimates o re-ceipts are below the February Budget esti-mates by $33 billion in 2010, $141 billion in2011, and continue to be lower through 2017,ranging rom a reduction o $112 billion in2012 to $11 billion in 2017. These reductionsare partially oset by higher estimates o re-ceipts in 2018 through 2020, or a net reduc-tion o $402 billion over the ten-year budgethorizon (2011 through 2020). These changesin receipts are primarily due to the eect oeconomic and technical revisions, which ac-count or $200 billion and $174 billion, respec-tively, o the net reduction in receipts over ten

years. Policy changes reduce receipts by anadditional $100 billion over the ten years.Revisions to Budget proposals attributable toeconomic and technical actors partially osetthese net reductions in receipts, increasing re-ceipts by $71 billion over the ten-year budgethorizon.

POLICY CHANGES

Changes that have resulted rom the en-actment o legislation and revisions in the

Administrations proposals increase receiptsby $5 billion in 2010 and reduce receipts in

each subsequent year, or a net reduction inreceipts o $100 billion over ten years. TheFebruary Budget included a placeholder orthe eects o health reorm legislation basedon the bills that had been passed by the Houseand Senate at the time. Relative to that place-holder and several other Administration pro-posals, enactment o the Patient Protectionand Aordable Care Act, as amended by theHealth Care and Education Reconciliation Act(Aordable Care Act), reduces receipts by $2billion in 2010, $19 billion in 2011, and $108billion over the ten years, 2011 through 2020.(Note that the decit eect o this reductionin receipts is almost entirely oset by the -nal legislations reduction in outlays relativeto the placeholder in the Budget.) Other legis-lated changes in taxes and ees, which includethe Hiring Incentives to Restore Employment

Act, reduce receipts by a net $7 billion overthe ten-year budget horizon relative to the

Administrations February Budget proposals.These net reductions in receipts attributableto legislated tax changes are partially oset

by revisions in the Administrations propos-als, which increase receipts by $15 billion overthe ten-year budget horizon. These revisionsinclude reduction o the February Budgetsplaceholder or urther jobs initiatives to re-fect the subsequent enactment or proposal oinitiatives that had not been previously speci-ed in February.

ECONOMIC AND TECHNICALREVISIONS IN PROPOSALS

Revisions in the estimates o the Administrations proposals that have not

been enacted increase receipts by $43 bil-lion in 2010, reduce receipts by $24 billion in2011, and increase receipts by a net $71 bil-lion over the ten years, 2011 through 2020.O this, a reduction in the estimated cost opermanently extending alternative minimumtax relie, the 2001 and 2003 tax cuts, andestate and git taxes at parameters in eector calendar year 2009 increases receipts by$125 billion over ten years. The lower costo extending these temporary tax provisions,which are refected in the Administrationsbaseline projection o current policy, is due inlarge part to reductions in the economic ore-

cast or wages and salaries and other sourceso taxable income. The reduction in the es-timated cost o permanently extending theseprovisions is partially oset by a $54 billionreduction in the estimated net receipt gainrom the Administrations other proposals. Areduction in the estimated receipt gain romthe Administrations proposed tax increaseson higher-income individuals, attributablein large part to reductions in taxable income,particularly capital gains and dividends,accounts or most o the $54 billion reduc-tion in the estimated receipt gain rom the

Administrations other proposals.

ECONOMIC CHANGES

Revisions in the economic orecast have thegreatest eect on individual income taxesand social insurance and retirement receipts.Reductions in the economic orecast or wagesand salaries and other sources o taxable per-sonal income reduce individual income taxesby $7 billion in 2010, $8 billion in 2011, and

RECEIPTS


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$138 billion over ten years. Social insuranceand retirement receipts, which include SocialSecurity and Medicare payroll taxes, unem-ployment insurance receipts, and railroad

retirement and other retirement receipts, de-cline by $3 billion in 2010, $8 billion in 2011,and $134 billion over ten years. Wages andsalaries and proprietors income are the taxbase or Social Security and Medicare payrolltaxes, the largest component o this source oreceipts. Reductions in wages and salaries,which are based on additional income data,are responsible or the reductions in socialinsurance and retirement receipts in eachyear. These reductions are partially oset byincreases in proprietors income. Reductionsin deposits o earnings o the Federal ReserveSystem, attributable to lower interest rates,reduce receipts by an additional $7 billion

over the ten-year budget horizon. These re-ductions in individual income taxes, social in-surance and retirement receipts, and depositso earnings o the Federal Reserve System areonly partially oset by increases in corpora-tion income taxes and other sources o re-

ceipts. Changes in GDP and other economicmeasures that aect the protability o corpo-rations increase corporation income taxes by$11 billion in 2010, $7 billion in 2011 and $3

billion to $12 billion in each subsequent year,or an increase o $79 billion over ten years.

ESTIMATING CHANGES

Technical reestimates o receipts reducecollections by $83 billion in 2010, $92 billionin 2011, and a net $174 billion over the ten-year budget horizon. Technical reestimateso individual income taxes and social insur-ance and retirement receipts account or mosto this reduction in receipts. The revisions inindividual income taxes are in large part at-tributable to more recent collections data andrevisions in the individual income tax model

based primarily on updated tax data or prioryears. More recent taxable wage data romemployer returns accounts or most o thetechnical revisions in social insurance and re-tirement receipts.

Table 4. CHANGE IN RECEIPTS(In billions o dollars)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20202011-2015

2011-2020

February Budget estimate ............................... 2,165 2,567 2,926 3,188 3,455 3,634 3,887 4,094 4,299 4,507 4,710 15,771 37,268

Changes due to policy:

Aordable Care Act ...................................... 2 19 19 18 2 15 4 7 7 8 8 73 108

Other enacted legislation ............................. 4 4 1 2 18 * 16 * 2 2 9 17 7

Changes in proposals ................................... 11 5 4 3 2 * * * * * * 14 15

Total changes due to policy .................. 5 18 14 14 18 15 20 7 9 6 17 41 100

Changes due to economic and technicalrevisions in proposals .................................. 43 24 1 7 13 13 11 11 12 13 16 9 71

Changes due to revised economicassumptions:

Individual income taxes ............................... 7 8 13 14 14 12 14 15 18 15 14 61 138

Corporation income taxes ............................ 11 7 3 6 7 11 12 11 10 7 5 33 79

Social insurance and retirement receipts ... 3 8 12 12 13 14 17 16 16 14 12 59 134Deposit o earnings, Federal Reserve

System ...................................................... * 1 * 1 1 1 1 1 1 1 1 2 7

Other ............................................................. 1 * * * * * * * * * * * 1

Total changes due to revised economicassumptions ...................................... 1 7 22 22 21 17 19 21 25 24 22 89 200

Changes due to technical reestimates ............ 83 92 76 57 25 19 7 6 24 33 39 269 174

Total change in receipts ................................... 33 141 112 86 14 37 35 11 2 16 16 391 402

Mid-Session Review estimate .......................... 2,132 2,426 2,814 3,102 3,441 3,597 3,853 4,083 4,301 4,523 4,725 15,380 36,865

* $500 million or less.


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15

Outlays or scal year 2010 are now esti-mated to be $3.603 trillion, a $118 billion de-crease rom the February Budget estimate, duelargely to reduced spending or unemploymentcompensation and downward revisions in dis-cretionary spending and net outlays or depositinsurance. Relative to the February Budget, to-tal outlays have increased by $8 billion in 2011and decreased by $461 billion over ten years.These changes are largely the eect o tech-nical and economic revisions in estimates omajor programs as well as enactment o majorpieces o legislation since the February Budgetrelease, including the Patient Protection and

Aordable Care Act, as amended by the HealthCare and Education Reconciliation Act o 2010(Aordable Care Act).

POLICY CHANGES

Changes that have resulted rom the en-actment o legislation and changes in policysince the release o the February Budget havea minimal eect on outlays in 2010, but in-crease spending by $30 billion in 2011. Yetover the ten-year period, 2011 through 2020,policy changes decrease outlays by $215 bil-lion. The largest o these changes is the enact-

ment o the Aordable Care Act.

Health reorm. The health reorm provi-sions o the Aordable Care Act expand healthinsurance coverage through Medicaid and newmarket-based health insurance exchanges,make health care more aordable, and makenumerous other changes in health programs.The February Budget included a placeholderor the eects o health reorm legislation,based on the bills that had been passed by theHouse and Senate at the time. Relative to theFebruary Budget placeholder, enacted healthreorm reduces outlays by $94 billion over theten-year window, 2011 through 2020.

Student Aid and Fiscal Responsibility Act (SAFRA). SAFRA, included as parto the Reconciliation Act, enacted the

Administrations proposal to eliminate sub-sidies under the bank-based guaranteed stu-dent loan program and originate all new loansunder the more ecient Direct Loan Program.The Act also increased unding or Federal

Pell Grants and made other changes to edu-cation programs. Relative to the educationproposals in the February Budget, SAFRAreduces outlays by $46 billion over ten years,largely because SAFRA included more modestincreases in the Pell Grant maximum awardin uture years.

Other enacted legislation. Other legis-lation enacted since February included sev-eral temporary extensions o extended un-employment benets, health subsidies orlaid-o workers under COBRA, and relierom scheduled reductions in Medicare phy-

sician payments. These extensions were parto the February Budget proposals and there-ore the enacted extensions had little eectrelative to the outlay estimates in the Budget.The Medicare physician payment legislationenacted in June included a provision to clar-iy that payment or inpatient hospital carecovers certain preadmission services, whichreduced Medicare outlays relative to theFebruary estimates.

Changes in proposals. Revisions in theAdministrations budget proposals reduce out-lays by $4 billion in 2010 and increase outlays

by $7 billion over the next ten years. Theserevisions include new proposals to provideunding or States to prevent layos o teach-ers, reghters, and police; create a SmallBusiness Lending Fund and State SmallBusiness Credit Initiative to promote accessto capital by small businesses; and establish ahome energy retrot rebate program to jump-start demand and improve energy eciency.The revisions also include a reduction in thesize o the February Budgets placeholder orurther jobs initiatives (rom $100 billion to$50 billion, evenly divided between spendingand receipts) to refect the subsequent enact-ment or proposal o jobs initiativessuch asthe new jobs measures described abovethathad not been previously specied in the 2011Budget.

ESTIMATING CHANGES

Estimating changes are due to actors otherthan enacted legislation or changes in policy,including changes in economic assumptions,

EXPENDITURES


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discussed earlier in this Review, and changesin technical actors. Relative to the Budget esti-mate, economic and technical changes decreaseestimated outlays or 2010 by $118 billion and

by $246 billion rom 2011 through 2020.

Discretionary appropriations. Outlaysor discretionary appropriations all by $30billion in 2010 and increase by $51 billion overthe next ten years relative to the Budget as aresult o technical revisions. These changesrefect higher outlays in 2010 compared tothe February Budget or the Department oHousing and Urban Development, with sig-nicantly lower spending in the Departmentso Deense, Health and Human Services,Education, Energy, Transportation, andHomeland Security. In 2011, the Departmentso Deense, Energy, Labor, and the Corps o

Engineers show signicantly higher out-lays than projected in the Budget, while theDepartment o Health and Human Services isagain lower than projected in the Budget dueto technical revisions.

Medicare. Estimating changes reduceout-lays or Medicare by $75 billion over the nextten years, most notably in the later years o theperiod. Outlays or Medicare Parts A and B areexpected to decrease, while those or MedicarePart D are expected to increase. Slower-than-projected spending growth relative to theFebruary Budget reduces outlays, but the re-

ductions are partially oset by increases due tohigher estimated Medicare enrollment.

Unemployment compensation. Changesin economic and technical assumptions de-crease outlays or unemployment benets by$34 billion in 2010 and $17 billion in 2011.Over the ten-year period o 2011 through2020, outlays are down by $66 billion. Thereduction is driven by lower-than-expectedUnemployment Insurance rates as well as re-duced projections o total civilian unemploy-ment over the next several years.

Veterans Compensation and Pension.

Outlays or Veterans Compensation andPension benets are $9 billion lower than theFebruary estimates in 2010 but are higherthan the February estimates in subsequentyears. The reduction in 2010 is due to delaysin enacting appropriations and implement-ing regulations necessary to pay retroactiveclaims related to Agent Orange exposure. The

MSR assumes that these payments will beginlater this scal year but the bulk o paymentswill outlay the ollowing year, accounting ormost o the $10 billion increase in outlays in

2011. Over the 11-year period 2010 through2020, compensation and pension outlays riseby $27 billion due to increased caseload esti-mates, which are only partly oset by reducedoutlays rom expected lower cost o living ad-

justments (COLAs).

Medicaid. Projected Federal outlays orMedicaid decrease by $21 billion over tenyears rom the February Budget estimates.The decreases stem primarily rom slowerprojected spending growth in State estimatesand actuarial models relative to the baselineestimates in the Budget and lower infation.

Deposit insurance. Deposit insuranceoutlays all by $18 billion in 2010 relative tothe February estimates, but rise by $18 bil-lion over the ollowing ten years. Much o thereduction in 2010 results rom the increaseduse o loss sharing agreements by the FederalDeposit Insurance Corporation (FDIC) whenresolving ailed institutions. Loss sharingagreements result in lower upront paymentsby the Deposit Insurance Fund (DIF), as part-nering institutions take over the insolventbanks but reduce expected uture receipts tothe DIF rom selling assets ater bank ail-ures. The revised MSR estimates also refect

an increased orecast o ailed bank assets be-cause o weaker conditions in the banking in-dustry ollowing the European debt crisis anda slower-than-expected recovery. NationalCredit Union Administration (NCUA) spend-ing comprised $6 billion o the reduction in2010 outlays due primarily to a timing shitrom 2010 to 2011.

Social Security. Estimating changes re-duce outlays or Social Security by $1 billionin 2010 and increase outlays by $13 billionover the next ten years. Spending decreasesdue to lower COLAs are more than oset byincreases in outlays due to recent program ex-perience, lower projected mortality rates orpersons ages 65 and older, and revised esti-mates o the eects o the recession on dis-ability incidence.

Supplemental Nutrition AssistanceProgram (SNAP). Outlays or SNAP, or-merly called Food Stamps, decrease by $11


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17EXPENDITURES

billion over the next ten years due to economicand technical actors. Technical changes in-clude increased participation assumptions o300,000 individuals in 2012 and 2013. This

increased participation drives up SNAP pro-gram costs relative to the Budget. In the longterm, however, participation is expected to allto historical levels more rapidly than estimat-ed in February due to the strengthening econ-omy, which results in out-year participationestimates that are lower than in the Budget,decreasing program costs starting in 2015.

Troubled Asset Relie Program (TARP).Relative to the February Budget, outlays orTARP are now expected to be $10 billion lowerin 2010 due to technical revisions, and decrease$3 billion over the course o the 11-year peri-od rom 2010 to 2020. Outlays or the Home

Aordable Modication Program (HAMP) areassumed to occur later than refected in the

Budget, with lower outlays in 2010 and 2011,and higher outlays in 2012 and beyond, withtotal outlays unchanged. The $3 billion reduc-tion in programs other than HAMP is primarily

due to the Administrations decision to removea $3 billion placeholder in TARP that was as-sumed in the Budget or small business initia-tives, as the Administration is instead seekingto create a Small Business Lending Fund andState Small Business Credit Initiative outsideo TARP.

Net interest. Excluding the debt service as-sociated with policy changes, outlays or net in-terest are projected to decrease by $202 billionover ten years. These reductions are virtuallyall due to the eect o lower short- and long-term Treasury interest rates over the next ewyears o the revised MSR economic orecast,

partially oset by increased debt service dueto estimating changes in receipts and outlays.


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Table 5. CHANGE IN OUTLAYS(In billions o dollars)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20202011-2015

2011-2020

February Budget estimate ................................. 3,721 3,834 3,755 3,915 4,161 4,386 4,665 4,872 5,084 5,415 5,713

Changes due to policy:

Aordable Care Act ................................. ......... 7 4 23 19 17 8 4 8 11 16 48 94Preservation o Access to Care or

Medicare Beneciaries and PensionRelie Act ............................................... 1 * 6 7 8 8 9 10 10 11 12 29 82

Student Aid and Fiscal ResponsibilityAct ........................................................ 2 1 6 4 5 5 6 6 7 9 12 7 46

Other legislation and policy changes ...... 1 22 3 2 2 * * * * * * 20 18

Debt service .............................................. * * 1 2 1 1 1 1 2 3 5 3 10

Subtotal, policy changes ................................ * 30 8 35 33 31 24 22 28 36 45 61 215

Changes due to reestimates:

Discretionary appropriations:

Security ................................................ 8 4 3 1 * * 2 2 2 2 2 7 17Non-security ........................................ 22 13 8 5 2 1 1 3 * * * 29 34

Medicare ................................................... 4 3 4 2 8 4 17 13 7 16 13 9 75

Unemployment compensation ................. 34 17 9 7 7 6 6 5 4 3 2 46 66

Veterans Compensation and Pension ..... 9 10 1 2 2 3 3 3 3 4 4 18 37

Medicaid ................................................... 1 11 7 5 12 8 1 5 4 4 4 3 21

Deposit insurance .................................... 18 11 14 3 1 6 11 16 21 3 * 21 18

Social Security ......................................... 1 * 1 * 1 2 2 2 2 2 2 2 13Supplemental Nutrition Assistance

Program ................................................ * * 1 1 * 1 3 4 3 1 * 1 11

Troubled Asset Relie Program ............... 10 3 * 2 2 2 2 1 * ......... ......... 4 7

Other mandatory programs .................... 8 4 4 6 38 24 6 10 15 19 28 68 2

Net interest 1 ............................................ 3 30 49 53 31 16 9 5 2 2 4 179 202

Subtotal, reestimates ..................................... 118 22 37 42 10 5 31 47 6 34 42 87 246

Total change in outlays ...................................... 118 8 29 77 22 27 55 68 34 70 87 148 461

Mid-Session Review estimate ............................ 3,603 3,842 3,725 3,838 4,139 4,359 4,610 4,804 5,051 5,345 5,626

* $500 million or less.1 Includes debt service on all reestimates.


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19

SUMMARY TABLES


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Table S2. EFFECT OF BUDGET PROPOSALS ON PROJECTED DEFICITS(Decit increases (+) or decreases () in billions o dollars)

2010 2011 2012 2013 2014 2015 2016 2017 2018

Memorandum, proposed changes in appropriated (discretionary) budgetary resources:

Overseas contingency operations ............................... 33 28 84 86 88 90 93 95 98

Security (except OCO) ................................................. 7 16 27 30 33 37 38 39 39

Non-security ................................................................ 1 14 19 31 29 27 32 34 34

Total, appropriated unding .............................. 41 30 75 86 85 80 87 91 93

Memorandum, decit reduction exclusive o OCOsavings and related debt service ................................. 58 147 15 92 110 127 141 155 169

Note: Figures displayed in the table do not refect the impact o any recommendations rom the Fiscal Commission.

* $500 million or less.1 See tables S-3 and S-7 or inormation on the baseline projection o current policy.2A comprehensive market-based climate change policy will be decit neutral because proceeds rom emissions allowances will be use

lies, communities, and businesses during the transition to a clean energy economy. Receipts will also be reserved or investments to rincluding support o clean energy technologies, and in adapting to the impacts o climate change, both domestically and in developing c

3 Includes reundable tax credits.4 Includes the eects o continuing certain expiring provisions through calendar year 2011.5 Includes limiting itemized deductions, trade initiatives, and other tax initiatives on Table S-10.


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Table S3. BASELINE PROJECTION OF CURRENT POLICY BY CATEGORY(In billions o dollars)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

On-budget decit ................................................... 1,550 1,479 1,312 1,071 1,019 1,021 1,118 1,148 1,129 1,174

O-budget surplus () ........................................... 137 74 79 104 115 125 132 145 141 138

Memorandum, unding (budgetary resources) or appropriated programs:

Security .................................................................. 824 814 834 854 874 895 917 939 963 988

Non-security ......................................................... 689 446 456 466 478 489 500 512 524 537

Total, appropriated unding .......................... 1,513 1,260 1,291 1,320 1,352 1,384 1,417 1,451 1,487 1,525

* $500 million or less.1 See Table S-7 or inormation on adjustments to the Budget Enorcement Act (BEA) baseline.2 Outlays or TARP in 2011 and subsequent years result rom obligations or the Home Aordable Modication Program, and other

curred through October 3, 2010.3 These amounts represent a placeholder or major disasters requiring Federal assistance or relie and reconstruction. Such assista

o discretionary or mandatory outlays or tax relie. These amounts are included as outlays or convenience.


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Table S4. PROPOSED BUDGET BY CATEGORYContinued(In billions o dollars)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

On-budget decit ...................................... 1,550 1,545 1,495 1,015 851 823 895 904 865 890O-budget surplus () .............................. 137 74 79 104 115 126 133 146 144 141

Primary decit ......................................... 1,226 1,287 1,195 617 351 218 208 140 46 21Net interest .............................................. 187 185 221 294 385 480 554 617 675 728

Memorandum, unding (budgetary resources) or appropriated programs:Security ..................................................... 824 859 879 796 817 838 862 884 906 929

Non-security ............................................ 689 447 441 446 446 459 472 479 489 502Total, appropriated unding .............. 1,513 1,306 1,320 1,242 1,263 1,297 1,335 1,362 1,395 1,430

Note: Figures displayed in the table do no refect the impact o any recommendations rom the Fiscal Commission.

* $500 million or less.1 Outlays or TARP in 2011 and subsequent years result rom obligations or the Home Aordable Modication Program, and other

curred through October 3, 2010.2 These amounts represent a placeholder or major disasters requiring Federal assistance or relie and reconstruction. Such assista



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Table S5. PROPOSED BUDGET BY CATEGORY AS A PERCENT OF GDP(As a percent o GDP)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

On-budget decit ...................................................... 10.9 10.5 9.8 6.3 5.0 4.5 4.7 4.5 4.1 4.0

O-budget surplus () .............................................. 1.0 0.5 0.5 0.6 0.7 0.7 0.7 0.7 0.7 0.6

Primary decit ......................................................... 8.6 8.8 7.8 3.8 2.0 1.2 1.1 0.7 0.2 0.1

Net interest .............................................................. 1.3 1.3 1.4 1.8 2.2 2.6 2.9 3.1 3.2 3.3


Security ..................................................................... 5.8 5.8 5.7 4.9 4.8 4.6 4.5 4.4 4.3 4.2

Non-security ............................................................ 4.8 3.0 2.9 2.8 2.6 2.5 2.5 2.4 2.3 2.3Subtotal, appropriated programs ..................... 10.6 8.9 8.6 7.7 7.4 7.2 7.0 6.8 6.6 6.5


* 0.05 percent o GDP or less.1 Outlays or TARP in 2011 and subsequent years result rom obligations or the Home Aordable Modication Program, and oth

incurred through October 3, 2010.2 These amounts represent a placeholder or major disasters requiring Federal assistance or relie and reconstruction. Such assistan



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Table S6. PROPOSED BUDGET BY CATEGORY ADJUSTED FORINFLATION AND POPULATION GROWTHContinued

(In billions o dollars, based on 2011 prices and population)

2011 2012 2013 2014 2015 2016 2017

On-budget decit .................................................................. 1,495 988 805 756 798 782 726

O-budget surplus () .......................................................... 79 101 109 115 119 126 121

Primary decit ..................................................................... 1,195 601 332 200 185 122 39

Net interest .......................................................................... 221 286 364 441 494 534 566


Security ................................................................................. 879 775 773 770 769 765 760

Non-security . ....................................................................... 441 434 422 422 421 414 410

Subtotal, appropriated programs ............................. 1,320 1,209 1,195 1,192 1,190 1,179 1,171


* $500 million or less.1 Outlays or TARP in 2011 and subsequent years result rom obligations or the Home Aordable Modication Program, and other

incurred through October 3, 2010.2 These amounts represent a placeholder or major disasters requiring Federal assistance or relie and reconstruction. Such assista

orm o discretionary or mandatory outlays or tax relie. These amounts are included as outlays or convenience.


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Table S7. BRIDGE FROM BUDGET ENFORCEMENT ACT BASELINTO BASELINE PROJECTION OF CURRENT POLICY

(Decit increases (+) or decreases () in billions o dollars)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

BEA baseline decit .............................................. 1,413 1,404 1,012 668 546 481 514 478 408 401

Adjustments to refect current policies:

Index to infation the 2009 parameters o the AMT ................................................................... ......... ......... 75 31 36 42 50 59 68 7

Continue the 2001 and 2003 tax cuts 1 ................ ......... * 130 229 255 278 303 325 343 360

Prevent reduction in Medicare physicianpayments ........................................................... ......... ......... 14 28 33 35 37 39 42 45

Correct baseline growth rates or pay increases . ......... ......... 2 3 3 3 3 3 3 4

Subtotal .......................................................... ......... * 216 287 321 353 387 419 450 480

Adjustment to refect costs o possibleemergencies2 ..................................................... ......... 1 2 4 4 4 5 5 5 5

Adjustments to Pell Grants:

Refect cost o unding existing maximum grantaward ................................................................. ......... ......... 2 3 12 13 13 13 13 13

Remove Pell Grants rom appropriated category .... 19 28 25 21 31 31 31 32 32 33

Add Pell Grants to mandatory category .............. 19 28 25 21 31 31 31 32 32 33

Subtotal .......................................................... ......... ......... 2 3 12 13 13 13 13 13

Total program adjustments .................................. ......... 1 221 293 338 370 405 437 468 498

Debt service on adjustments ................................ ......... * 1 6 21 45 66 88 112 138

Total adjustments .......................................... ......... 1 221 299 359 415 471 525 580 636

Baseline projection o current policy decit .... 1,413 1,405 1,233 967 904 896 985 1,003 987 1,037

*$500 million or less.1 In continuing the 2001 and 2003 tax cuts, the estate tax is maintained at its 2009 parameters.2 These amounts represent a placeholder or major disasters requiring Federal assistance or relie and reconstruction. Such assista



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Table S8. CHANGE IN THE BASELINE PROJECTION OF CURRENPOLICY FROM BUDGET TO MSR

(In billions o dollars)

2010 2011 2012 2013 2014 2015 2016 2017 2018 20

February decits in the baselineprojection o current policy ................ 1,430 1,145 934 940 934 983 1,013 1,042 1,077 1

Percent o GDP .......................................... 9.8% 7.5% 5.8% 5.5% 5.1% 5.1% 5.0% 4.9% 4.9%

Revisions due to enacted legislation:Aordable Care Act ............................ 7 3 20 50 48 8 7 3 8

Student Aid and Fiscal ResponsibilityAct ................................................... 2 4 5 3 2 * * 1 2

Temporary extensions ounemployment benets ................... 20 2 * ......... ......... ......... ......... ......... .........

Other legislative changes:

Receipts ............................................ 5 4 2 3 19 1 15 1 1

Discretionary outlays ..................... 3 * 2 * 1 1 1 1 1

Mandatory outlays ......................... 1 1 5 7 7 8 9 9 10Debt service on legislative changes .. ..... * * * * 2 3 1 1 2

Subtotal, enacted legislation .................... 28 * 20 62 76 20 11 8 18

Revisions due to updated economic assumptions:Receipts .............................................. 6 9 20 19 16 12 16 18 21

Mandatory outlays ............................. 14 1 3 5 7 6 7 7 6Net interest ........................................ 6 29 48 52 40 29 23 19 15

Subtotal, economic revisions .................... 26 22 31 39 31 23 14 7 1

Revisions due to updated technical assumptions:

Receipts ............................................... 70 96 70 48 10 6 4 15 35

Discretionary outlays:

Security ............................................ 7 4 2 1 * * 2 2 2

Non-security .................................... 22 15 10 8 5 4 4 6 2

Mandatory outlays:

Medicare .......................................... * 7 1 1 11 9 21 17 11

Medicaid ........................................... 2 8 6 4 13 10 1 4 3

Unemployment compensation ....... 24 12 5 4 3 2 2 2 1

Veterans Compensation andPension ......................................... 9 10 2 2 3 3 3 4 4


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Table S8. CHANGE IN THE BASELINE PROJECTION OF CURRENPOLICY FROM BUDGET TO MSRContinued

(In billions o dollars)

2010 2011 2012 2013 2014 2015 2016 2017 2018 20

Other ................................................ 35 12 12 15 44 24 1 23 10

Net interest ........................................ 3 1 1 * 9 11 11 10 10Disaster costs ..................................... 1 1 * * * * * ......... ......... .

Subtotal, technical revisions .................... 28 110 84 65 70 46 7 39 23

Total changes since February .................... 25 87 33 35 38 2 10 54 40

MSR decits in the baseline projectiono current policy .................................... 1,405 1,233 967 904 896 985 1,003 987 1,037 1

Percent o GDP .......................................... 9.6% 8.0% 6.0% 5.3% 4.9% 5.2% 5.0% 4.7% 4.7%

Memorandum:

February unding (budgetary resources)or appropriated programs .................... 1,260 1,290 1,319 1,351 1,383 1,416 1,450 1,486 1,524 1

Change in unding:Security ............................................ ......... ......... ......... ......... * ......... ......... * *

Non-security .................................... 1 1 1 1 1 1 1 1 1

Total change in unding ............... 1 1 1 1 1 1 1 1 1MSR unding or appropriated programs: 1,260 1,291 1,320 1,352 1,384 1,417 1,451 1,487 1,525 1

* $500 million or less.


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Table S9. MANDATORY AND RECEIPT PROPOSALSContinued(Decit increases (+) or decreases () in millions o dollars)

2010 2011 2012 2013 2014 2015 2016 2017 2018 201

Reduce the tax gap and make reorms:

Expand inormation reporting:

Require inormation reporting orrental property expense payments .. ......... 114 249 295 309 323 336 348 362

Require inormation reporting orprivate separate accounts o lieinsurance companies ........................ ......... 1 2 3 4 4 6 7 8

Require a certied TaxpayerIdentication Number orcontractors ........................................ ......... 17 44 63 72 76 79 83 86

Require increased inormationreporting or certain governmentpayments ........................................... ......... 25 70 58 28 30 32 34 35

Increase inormation return penalties ......... 20 34 35 35 36 42 43 43Subtotal, expand inormation

reporting ......................................... ......... 177 399 454 448 469 495 515 534

Improve compliance by businesses:

Require electronic ling by certainlarge organizations ........................... ......... ......... ......... ......... ......... ......... ......... ......... ......... ..

Implement standards clariying whenemployee leasing companies can beheld liable or their clients Federalemployment taxes ............................. ......... 4 6 6 7 7 7 8 8

Strengthen rules pertaining toclassication o employees asindependent contractors ................... ......... 11 211 537 681 758 839 923 1,011 1,

Subtotal, improve compliance bybusinesses ....................................... ......... 15

Documents

FY2011 US GOVT BUDGET/Mid-Year Review -- 23-JUL-2010